Does Venture Capital Spur Innovation?

69 Pages Posted: 5 Jul 2000 Last revised: 17 Sep 2022

See all articles by Samuel S. Kortum

Samuel S. Kortum

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Josh Lerner

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Harvard University - Private Capital Research Institute

Multiple version iconThere are 2 versions of this paper

Date Written: December 1998

Abstract

While policymakers often assume venture capital has a profound impact on innovation, that premise has not been evaluated systematically. We address this omission by examining the influence of venture capital on patented inventions in the United States across twenty industries over three decades. We address concerns about causality in several ways, including exploiting a 1979 policy shift that spurred venture capital fundraising. We find that the amount of venture capital activity in an industry significantly increases its rate of patenting. While the ratio of venture capital to R&D has averaged less than 3% in recent years, our estimates suggest that venture capital accounts for about 15% of industrial innovations. We address concerns that these results are an artifact of our use of patent counts by demonstrating similar patterns when other measures of innovation are used in a sample of 530 venture-backed and non-venture-backed firms.

Suggested Citation

Kortum, Samuel S. and Lerner, Josh, Does Venture Capital Spur Innovation? (December 1998). NBER Working Paper No. w6846, Available at SSRN: https://ssrn.com/abstract=227614

Samuel S. Kortum (Contact Author)

University of Chicago - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Josh Lerner

Harvard Business School - Finance Unit ( email )

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HOME PAGE: http://www.people.hbs.edu/jlerner/

Harvard University - Entrepreneurial Management Unit

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United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI) ( email )

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Belgium

Harvard University - Private Capital Research Institute ( email )

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United States

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